Sample Company Two – Extreme Sports Ltd Extreme Sports Ltd, has been in operation for three years, and produces extreme sports equipment. It’s most recent set of financial accounts are set out below. Extreme Sports Ltd Statement of Financial Performanc
Sample Company Two – Extreme Sports Ltd
Extreme Sports Ltd, has been in operation for three years, and produces extreme sports equipment. It’s most recent set of financial accounts are set out below.
|
Extreme Sports Ltd Statement of Financial Performance for the year ended 31st March 2013 |
|
|
|
$’000 |
|
Sales |
2,600 |
|
Less cost of sales |
(1,620) |
|
Gross Profit |
980 |
|
Less other expenses |
(660) |
|
Net Profit |
320 |
|
Income Tax |
(95) |
|
Net Profit after tax |
225 |
|
Proposed Dividends |
(160) |
|
Retained profits for the year |
65 |
|
Extreme Sports Ltd Statement of Financial Position as at 31st March 2013 |
||
|
|
$’000 |
$’000 |
|
Current Assets |
|
|
|
Accounts Receivable |
820 |
|
|
Inventory |
600 |
|
|
|
|
1,420 |
|
Non-current Assets |
|
|
|
Freehold land and buildings |
|
228 |
|
Plant and machinery at cost |
942 |
|
|
Less accumulated depreciation |
(180) |
762 |
|
|
|
990 |
|
Total Assets |
|
2,410 |
|
Current Liabilities |
|
|
|
Bank overdraft |
385 |
|
|
Accounts payable |
665 |
|
|
Income taxation |
95 |
1,145 |
|
Non-current liabilities |
|
|
|
12% debentures |
|
200 |
|
Shareholders’ Equity |
|
|
|
Paid up Capital (issued at $1 per share) |
700 |
|
|
Retained Profits |
365 |
1,065 |
|
Total Liabilities & Shareholders’ Equity |
|
2,410 |
Notes:
The debentures are secured on the freehold land and buildings.
The company has asked an investor to invest $200,000 by purchasing its ordinary shares at $6.40 each. Extreme Sports Ltdwishes to use the funds to finance further expansion.
Required:
a) Calculate the following financial ratios using the supplied end of year figures where appropriate. Note in the following ratio calculations average figures are not available so yearend figures are used
1) return on assets (ROA)
2) return on equity (ROE)
3) gross profit margin
4) net profit margin
5) asset turnover
6) average settlement period for debtors
7) average inventory turnover
8) current ratio
9) liquid ratio
Note: Because you do not have beginning and ending balances for BOTH years, you cannot average. Consequently you must use the supplied end of year figures when calculating ratios.
b) Assess Extreme Sports Ltds’financial position and performance and comment on any features you consider being significant.
(c) State, with reasons, whether or not the investor should invest in Extreme Sports Ltd on the terms outlined.
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